Posts tagged ‘Chalice Gold Mines Ltd (CXN)’

First Mining Finance found bad times beneficial for good deals

by Greg Klein

Struggling junior? Not this company. Since its trading debut in April 2015, First Mining Finance TSXV:FF has compiled 25 projects covering some 300,000 hectares, from early stage to a PEA with 4.4 million gold ounces indicated. Just as aggressively, the company boosted its treasury to a current $35 million. Now First Mining looks forward to a $21-million exploration and development program for 2017 that includes 47,000 metres of drilling.

“We were able to execute on the vision of the company, which last year was to take advantage of the bear market and acquire projects,” VP of investor relations Derek Iwanaka explains. “I don’t know of any other company that was able to acquire as many projects, or projects as good as we got, during that period.”

Located in northwestern Ontario’s Birch-Uchi greenstone belt, First Mining’s 32,448-hectare Springpole flagship has an updated PEA scheduled for next year.

Certainly there were deals to be had for canny acquisitors. But that was while many other companies faced financing difficulties. First Mining bucked the trend last August by closing a $27-million private placement. How did they pull that off?

“Quite easily,” responds Iwanaka. “We were literally turning down millions of dollars. We had over $70 million in orders but we didn’t want that kind of dilution. So we just took the $27 million. That should carry us for at least the next few years, including all the drilling and overhead.”

First Mining seems to have something that eludes others.

“First of all we have Keith Neumeyer at the helm, who runs a multi-billion-dollar company as it stands,” says Iwanaka. “Keith has been adept at starting companies during very bad times and manoeuvring them so when times are good we can reap the rewards for our shareholders.”

Among companies founded by the First Mining director were First Quantum Minerals TSX:FM and First Majestic Silver TSX:FR, where Neumeyer’s president/CEO. First Majestic acts as a sort of mentor to First Mining, placing some FR directors in FF’s management and board, helping to get the new company started, lending it about $1 million, vending three Mexican properties and even providing office space.

Among considerations behind an acquisition are “size and quality of the project,” Iwanaka points out. “We look at projects with good grade, scalability, exploration upside. The jurisdiction’s quite important to us. We’re basically looking at North America, but not the North. We will look at South America as well. Quebec, Ontario and Newfoundland are our favourite places although we could go to other provinces too. In the U.S. we see Nevada and Arizona as fairly mining-friendly states. We could probably look at New Mexico as well. We do have some early-stage properties in Mexico, where First Majestic has its base, but we certainly focus on Canada.”

As for commodities, “we particularly like gold but silver, platinum and palladium are also attractive, as well as base metals—anything that’s exchange-tradeable.”

Other factors include “the price of the projects, the holding cost, the infrastructure. In many cases the projects we take already have roads and power lines going to them.”

If gold’s the company’s focus, the Springpole flagship explains why. Described as one of Canada’s largest undeveloped gold projects, the northwestern Ontario potential open pit came with the past owner’s 2013 PEA. Using a 0.4 g/t gold cutoff, the 2012 resource showed:

First Mining has work underway to bring the resource and PEA up to date. But looking back at 2013, the report calculated a post-tax NPV of US$388 million using a 5% discount, with a 13.8% post-tax IRR. Initial capex came to US$438 million with payback in 35 months of an 11-year mine life.

Visible gold was one attraction of the Goldlund project, which has another 27,000 metres of drilling planned.

“We expect the updated PEA will be even more robust,” Iwanaka says. “The U.S. dollar has appreciated since 2013, when it was at par. We’re also looking at increasing the recovery and the pit shell. Those three things could substantially improve the economics and we hope to have the new PEA out probably by the first half of next year.”

With assays pending, a four-hole, 1,712-metre fall program provided metallurgical fodder. Next summer’s agenda calls for another 6,000 metres of infill to upgrade the resource. In the meantime, pre-permitting environmental and baseline work will soon begin.

A newer acquisition gets even more rig attention next year. Goldlund, about 60 kilometres north of Dryden and roughly 200 klicks south of Springpole, has 27,000 metres planned to upgrade the resource and work towards an eventual PEA. The former open pit and underground operation came with an estimate that First Mining considers an historic non-43-101. Using a 0.4 g/t gold cutoff, it showed:

Cameron, maybe another 100 kilometres south of Goldlund, gets up to 9,000 metres of infill to pump up the measured and indicated prior to PEA. Using a 0.5 g/t cutoff, a 2015 resource from Chalice Gold Mines TSX:CXN showed:

Again, a resource upgrade precedes a PEA, this one slated for late 2017.

Back in Ontario and roughly 110 kilometres northeast of the Springpole flagship, autumn drilling has wrapped up at Pickle Crow. Assays from the nine-hole, 1,319-metre campaign are expected in early 2017. The former mine came with a 2011 inferred resource that used a 2.25 g/t gold cutoff for an underground deposit and a 0.35 g/t cutoff for an open pit deposit:

Underground

6.52 million tonnes averaging 5.4 g/t for 1.14 million ounces gold

Open pit

3.63 million tonnes averaging 1.1 g/t for 126,000 ounces

Total

10.15 million tonnes averaging 3.9 g/t for 1.26 million ounces

With assays to come, drilling to do and announcements for other North American projects anticipated, First Mining plans a steady news flow, says Iwanaka.

Sunridge, Nevsun, Chalice drill Eritrean gold, copper, zinc, silver

While continuing the Asmara feasibility study in Eritrea, Sunridge Gold TSXV:SGC announced on March 7 a new near-surface discovery at Kodadu, four kilometres east of Asmara’s Debarwa deposit. With assays complete on 21 reverse-circulation holes, the company now plans an initial resource estimate for the potential deposit.

True widths for the two zones were estimated at about 70%. Some highlights from the gossan zone include:

The top-most intercepts started at surface while the deepest stopped at a down-hole depth of 51 metres.

Some shear zone highlights include:

1.15 g/t over 33 metres

2.3 g/t over 16 metres

0.99 g/t over 21 metres

0.64 g/t over 15 metres

0.81 g/t over 11 metres

1.19 g/t over 1 metre.

Again, the top-most interval began at surface. The deepest ended at 79 metres down hole.

The company now wants to “rapidly define a resource that could be mined as feed” to a processing facility near Asmara’s Emba Derho copper-zinc-gold-silver deposit, 25 kilometres away, which would also serve three nearby satellite deposits. Three of Asmara’s four deposits would be open pit operations. The fourth, Adi Nefas, would go underground.

Asmara’s feasibility study is slated for Q2 release and already the company is forecasting improvements to last May’s pre-feas. Using a 10% discount rate, that study projected a pre-tax net present value of $555 million and a 27% internal rate of return. With initial capital costs then estimated at $489 million, payback would have come in 3.5 years, while the life of mine would last 15.25 years.

Now Sunridge is considering a staged start-up to cut capex and get to the ore earlier. Mining would begin with copper, gold and silver from Debarwa’s supergene (higher-grade) zone. Work would progress with heap leach gold production at the Emba Derho plant, processing ore from the Debarwa and Gupo deposits as well as Emba Derho. The next stage would involve mining and processing the remaining copper supergene ore from Debarwa and Emba Derho. With full production in year three, Asmara would produce an estimated annual average of 70 million pounds (31,750 tonnes) copper, 140 million pounds (63,500 tonnes) zinc, 31,000 ounces gold and 997,000 ounces silver over the mine’s first eight years.

The project is a joint venture under Zara Mining SC, the operating company. Under the agreement, the Eritrean National Mining Corp will pay Chalice US$32 million for a 30% interest. ENAMCO will also pay Chalice approximately $2 million towards exploration costs on the Zara licences outside the Koka licence. Following completion of the agreement, the Zara Project’s ownership structure will be 60% Chalice, 30% ENAMCO and 10% free carried interest. Chalice and ENAMCO will pay development costs for Koka and exploration costs for the Zara licences on a two-thirds/one-third basis.

Managing Director Doug Jones tells ResourceClips.com, “They’re pretty encouraging results. Koka South is immediately adjacent to the Koka open pit, where we’ve got 760,000 ounces mineable at five grams. It looks like Koka South is a continuation of that system, whereas the Koka Main mineralization tends to be over a width of 15 to 20 metres. It seems to extend down into the Koka South area, but you’re getting significantly higher results, as you can see from these results and the previous results in early November.

The Chinese are already heavily invested in Eritrea. It’s not a surprise that they’re quite keen on acquiring additional assets there. And there’s quite a strong political link between Eritrea and China—Doug Jones

“We’ve got assays from three more holes to come for this season. Holes 236 and 237 look fairly promising because they have visible mineralization, and that does seem to confirm that mineralization continues to the south, at depth. It seems that close to surface at Koka South we’re not seeing the mineralization in the surface geochemistry. There were a couple of holes that had no significant intersections near surface. But certainly the deeper holes have good-looking visible mineralization.

“We’re continuing to expand; 760,000 ounces, even at five grams, is not a big reserve. We’d like to get that over a million ounces. Given that Koka South is so close to the pit, it could be a significant material addition to the Koka operation. It’ll probably be underground, though. I think the strip ratio there would preclude an open pit.

“About two and a half kilometres further south we’ve got the Debre Konate prospect, where we had some pretty interesting results that we released December 15. That’s a pretty exciting prospect too, with very robust soil anomalies. The Debre Tsaeda prospect looks interesting too. So we’ve got a big drill program planned for next year,” Jones says.

Chalice announced December 12 it had signed a non-binding letter of intent proposing terms to sell its 60% share in Zara. Jones acknowledges widespread speculation that a Chinese company was involved. But he declined to elaborate publicly.

“The Chinese are already heavily invested in Eritrea,” he points out. “It’s not a surprise that they’re quite keen on acquiring additional assets there. And there’s quite a strong political link between Eritrea and China.

“The UN sanctions on Eritrea have had a limited effect on exploration and mining so far,” he reports. “It’s been suggested in some circles that the sale of this project results from the sanctions. But it has nothing to do with the sanctions. The press release from Nevsun TSX:NSU [December 6] pointed out that the wording of the sanctions has virtually no impact on the mining industry. I think that it just reinforces aversion in people who are already risk-averse. But I don’t think people who were prepared to fund projects in Eritrea six months ago are going to change their minds because of renewed or extended sanctions. Certainly in terms of our day-to-day activities, it’s not going to affect us at all.

“If the sale goes through, we’ll be looking for a new project,” Jones says. “I think there’ll be a lot of opportunity next year. The way the market is, I think it’s going to be difficult for a lot of juniors to fund their projects. If we have something in the order of $80 million to $100 million, that gives us the ability to leverage it into new projects. We’d be looking for relatively advanced projects.

“We were planning to take Koka into production. We put everything into place except the funding, then this offer came through. We were already transitioning from a purely exploration company towards development with the addition of a couple of mining engineers, and more additions of that sort were planned.

“We’d like to diversify our political risk. Regardless of whether we think Eritrea is a good country to work in, the market has its own view. Along with Nevsun, we’ve been hammered fairly hard through that perception. We’ll certainly look at opportunities inside Eritrea, but we’ll look at others as well, to diversify our political risk.”

Jones concludes, “We’re in an interesting position at the moment. We have a good project which we could take through to production. We’re in the process of being made an offer. If we go through with that, it should leave us with a significant amount of money which will open up a lot of opportunities going into the new year. With the market the way it is, I think a lot of the juniors are going to be starved for funds. So if we have cash in the kitty, we’ll be able to take on some new projects.”

The project is a joint venture under Zara Mining SC, the operating company. Under the agreement, the Eritrean National Mining Corp will pay Chalice US$32 million for a 30% interest. ENAMCO will also pay Chalice approximately $2 million towards exploration costs on the Zara licences outside the Koka licence. Following completion of the agreement, the Zara Project’s ownership structure will be 60% Chalice, 30% ENAMCO and 10% free carried interest. Chalice and ENAMCO will pay development costs for Koka and exploration costs for the Zara licences on a two-thirds/one-third basis.

Managing Director Doug Jones tells ResourceClips.com, “They’re pretty encouraging results. Koka South is immediately adjacent to the Koka open pit, where we’ve got 760,000 ounces mineable at five grams. It looks like Koka South is a continuation of that system, whereas the Koka Main mineralization tends to be over a width of 15 to 20 metres. It seems to extend down into the Koka South area, but you’re getting significantly higher results, as you can see from these results and the previous results in early November.

The Chinese are already heavily invested in Eritrea. It’s not a surprise that they’re quite keen on acquiring additional assets there. And there’s quite a strong political link between Eritrea and China—Doug Jones

“We’ve got assays from three more holes to come for this season. Holes 236 and 237 look fairly promising because they have visible mineralization, and that does seem to confirm that mineralization continues to the south, at depth. It seems that close to surface at Koka South we’re not seeing the mineralization in the surface geochemistry. There were a couple of holes that had no significant intersections near surface. But certainly the deeper holes have good-looking visible mineralization.

“We’re continuing to expand; 760,000 ounces, even at five grams, is not a big reserve. We’d like to get that over a million ounces. Given that Koka South is so close to the pit, it could be a significant material addition to the Koka operation. It’ll probably be underground, though. I think the strip ratio there would preclude an open pit.

“About two and a half kilometres further south we’ve got the Debre Konate prospect, where we had some pretty interesting results that we released December 15. That’s a pretty exciting prospect too, with very robust soil anomalies. The Debre Tsaeda prospect looks interesting too. So we’ve got a big drill program planned for next year,” Jones says.

Chalice announced December 12 it had signed a non-binding letter of intent proposing terms to sell its 60% share in Zara. Jones acknowledges widespread speculation that a Chinese company was involved. But he declined to elaborate publicly.

“The Chinese are already heavily invested in Eritrea,” he points out. “It’s not a surprise that they’re quite keen on acquiring additional assets there. And there’s quite a strong political link between Eritrea and China.

“The UN sanctions on Eritrea have had a limited effect on exploration and mining so far,” he reports. “It’s been suggested in some circles that the sale of this project results from the sanctions. But it has nothing to do with the sanctions. The press release from Nevsun TSX:NSU [December 6] pointed out that the wording of the sanctions has virtually no impact on the mining industry. I think that it just reinforces aversion in people who are already risk-averse. But I don’t think people who were prepared to fund projects in Eritrea six months ago are going to change their minds because of renewed or extended sanctions. Certainly in terms of our day-to-day activities, it’s not going to affect us at all.

“If the sale goes through, we’ll be looking for a new project,” Jones says. “I think there’ll be a lot of opportunity next year. The way the market is, I think it’s going to be difficult for a lot of juniors to fund their projects. If we have something in the order of $80 million to $100 million, that gives us the ability to leverage it into new projects. We’d be looking for relatively advanced projects.

“We were planning to take Koka into production. We put everything into place except the funding, then this offer came through. We were already transitioning from a purely exploration company towards development with the addition of a couple of mining engineers, and more additions of that sort were planned.

“We’d like to diversify our political risk. Regardless of whether we think Eritrea is a good country to work in, the market has its own view. Along with Nevsun, we’ve been hammered fairly hard through that perception. We’ll certainly look at opportunities inside Eritrea, but we’ll look at others as well, to diversify our political risk.”

Jones concludes, “We’re in an interesting position at the moment. We have a good project which we could take through to production. We’re in the process of being made an offer. If we go through with that, it should leave us with a significant amount of money which will open up a lot of opportunities going into the new year. With the market the way it is, I think a lot of the juniors are going to be starved for funds. So if we have cash in the kitty, we’ll be able to take on some new projects.”